1. International Debt African Economic Development Renata Serra

2. Debt figures  Developing countries’ debt: US$ 2.5 trillions  The total debt stock for SSA: 1970s: over $20 billions 1980s: over $100 billions 1990s: over $222 billions 2004: over $280 billions (excluding debt relief)  On average this is about: 60% of GDP and two times the value of export For the most indebted countries: NPV>150% GDP

3. Pre-HIPC  Ad-hoc and bilateral agreements Rescheduling of principal and interest payments by Paris Club members Increased concessionality and new concessional lending  However, no reduction in debt stock

4. HIPC Initiative (1996)  Comprehensive approach Foreign debts owed to bilateral (Paris Club), multilateral (The World Bank and IMF) and commercial creditors (London Club) Debt is reduced to ‘sustainable level’, not just re-financed Two stages, 3 years each: ‘decision’ and ‘completion’ points

5. Enhanced HIPC (1999)  More pronounced debt relief and lower threshold allowing more countries to qualify  Weaknesses of the HIPC: Debt not sustainable even after first reductions Funds and efforts had been insufficient Eligibility criteria were ad hoc and not fair, excluding countries that were poor and indebted

6. Thresholds for eligibility  NPV of debt/exports>150%  Debt service/export>15% For very open economies (e.g. X/GDP>30% and fiscal revenues/GDP>15%), the threshold is NPV of debt/fiscal revenues>250%  Problem: Meeting these thresholds today does not guarantee future sustainability GDP may be a better indicator of countries’ economic capacity to repay debt than purely financial figures, such as foreign exchange reserves

7. Progress with HIPC  42 countries eligible (36 in SSA) Debt canceled Debt relief committe d Total relief (col. 1+2) Debt stock remaining SSA32,66526,03658,072225,213 Latin Am.10,6901,74412,4347,611 Asia00031,786 MENA4,6100 0 TOT47,96627,78175,746264,610 Figures are for end 2004, millions US$ and in nominal terms

8. Debt relief helps: Uganda case  Uganda paid an average of US$150.9 million from 1994 to 1998. Over 2001-2015 it expects to pay an average of US$95.4 billion  The budgetary saving will average US$ 55.5 million over the period 2001-2015 This debt dividend corresponds to 8.9% of social expenditure in a typical fiscal year and 3% of total expenditure  Over the period 2001-2005, the debt dividend is even higher, and equal to US$ 83.4 million This amounts to 13.3% of social expenditure, and 4.6% of total expenditure

9. Uganda (cont’d)  Creation of a Poverty Action Fund (PAF) to make poverty- reduction spending and the use of savings from debt relief more transparent  Expenditure programs targeted by PAF include: rural feeder roads agricultural extension primary education and primary health care water and sanitation: made a higher priority since the people wanted so  Through the PAF, the government makes information readily available to the public Civil society and the parliament can follow-up All PAF resources are published in the media Lower levels of government (districts, schools, and health care centers) are required to display PAF allocations in public places. Quarterly meetings are convened to discuss independent assessments of PAF expenditures

10. Limitations of HIPC  Inappropriate eligibility criteria: poverty is defined too narrowly and domestic debt is excluded (Kenya and Nigeria excluded up to recently)  Slow pace of implementation and long delays  Interim relief is highly insufficient and below pledges  Limited additionality of aid: no net benefits!!!  Inappropriate sustainability criteria

11. Beyond HIPC  HIPC is failing by its own term: Only a minority of countries have seen their debts brought down to 150% of GDP Unrealistic forecasts about future export and growth  The Jubilee Initiative has been advocating: Introduction of an international insolvency framework Complete cancellation of debt  The G8 have recently accepted to cancel the IMF and WB debt of the 18 HIPC countries (and possibly of more countries?)